RISKS FACING THE CITY OF MAYWOOD

In July 2015, the California State Auditor (State Auditor) informed the city of Maywood that it had been selected for review under the high‑risk local government agency audit program. This program authorizes the State Auditor to identify local government agencies that are at high risk for potential waste, fraud, abuse, or mismanagement, or that have major challenges associated with their economy, efficiency, or effectiveness. We initially identified Maywood as an entity that might be classified as a high‑risk local government entity based on publicly available information. We conducted an initial assessment of Maywood in July and August 2015, and this assessment identified concerns regarding Maywood’s persistent general fund deficit and significant overdue debts, which threaten Maywood’s ability to provide services to its residents.

In Maywood’s August 2015 response to our assessment, its former city manager agreed that Maywood is an at‑risk entity and cited the city’s efforts over the past five years to restructure its operations to avoid bankruptcy. We requested a subsequent update on Maywood’s progress in addressing our concerns, and in December 2015 the city’s newly appointed interim city manager reported that although the city had not yet taken any action to address our concerns, the new administration was committed to developing strategies to correct the city’s condition. As a result of our continuing concerns about Maywood’s financial condition, we recommended an audit of Maywood, which the Joint Legislative Audit Committee approved in January 2016.

Maywood’s financial and operational issues partly stem from the city’s troubled history. In June 2010, Maywood reached a crisis point when—because it had lost its general liability and workers’ compensation insurance—it disbanded its police department and laid off all city employees. The California Joint Powers Insurance Authority (Insurance Authority) canceled Maywood’s insurance coverage because of accumulating lawsuits against the city arising from police misconduct and the city’s insufficient progress toward mitigating risks and preventing additional legal claims. At the same time, Maywood exhausted its general fund balance and had only $136,000 left in available cash. Maywood briefly contracted with the city of Bell to provide the public services previously performed by city employees. In August 2010, Maywood hired the former city manager, who served the city until December 2015, but the city otherwise continued to rely largely on contract labor.

As shown in Figure 1, Maywood still contracts for many of the services it provides to the public, including law enforcement, which accounts for nearly half of the city’s general fund expenditures. Maywood contracts with the county for animal control services, and it relies on private companies to maintain its four parks and the city’s facilities, which include the city hall and a community center, and to provide engineering services, which include building inspections and transportation planning.

Figure 1
The City of Maywood’s Organizational Chart as of August 2016

Sources: Maywood’s adopted budgets for fiscal years 2012–13 through 2015–16, interviews with key city employees, city council meeting minutes, and selected contracts.

* Members of the planning commission undertake projects to further the general plan of the city.

In early December 2015—after our initial assessment—the city experienced additional turmoil following changes in the composition of the city council. As Figure 2 shows, in early December, the city council swore in two new council members, selected a new mayor, and replaced the former city manager and former city attorney. During the following five months, the city council selected two new mayors and once again replaced the individuals in the positions of city manager and city attorney. The new city council’s actions, including hurried personnel changes, raise additional concerns about Maywood’s stability, particularly given the city’s already precarious financial condition.

Figure 2
City Management Changes Between August 2010 and August 2016

Source: Minutes for Maywood City Council meetings that occurred from August 2010 through August 2016.

* The city council nominates and selects one of its own members for the position of city mayor.

† The city uses the positions of the city manager and the city administrator interchangeably.

Our audit concluded that Maywood should be classified as a high‑risk local government agency because of substantial risk factors regarding the city’s financial and operational management. Specifically, we identified indicators of an impaired financial condition, including the city’s inability to pay its obligations and to maintain financial stability, its failure to comply with recognized financial reporting standards, and its exposure to unmitigated risk of fraud.

Furthermore, numerous aspects of Maywood’s operations were ineffective, and these shortcomings contributed to the city’s classification as a high‑risk agency. In particular, ineffective management and insufficient oversight impaired Maywood’s ability to recover from its fiscal difficulties. The city council did not oversee the city’s operations adequately, nor did it monitor the performance of the former city manager over her five‑year tenure, allowing numerous problems to remain uncorrected.

Although Maywood has projected a slight improvement in its financial condition, it still lacks the resources to fully repay substantial overdue debts, including $10.3 million it owes to the Insurance Authority mainly for lawsuits resulting from the misconduct of police officers who worked for the now‑dissolved Maywood Police Department. Although the city has experienced a persistent deficit in its general fund, it has not created a long‑term plan for rebuilding its general fund reserve—critical in times of economic downturn—and for repaying its overdue obligations. As a result, Maywood’s precarious financial condition compromises its ability to provide services to its residents, such as public safety, parking enforcement, and infrastructure maintenance and repair. Notwithstanding Maywood’s fiscal challenges, the city council made some wasteful spending decisions, and the city council together with the former city manager failed both to ensure the cost‑effectiveness of city contracts and to maximize available revenue.

To help Maywood address these risk factors, we have developed recommendations for the city to implement, including employing better personnel management practices; discontinuing its wasteful mileage reimbursement policy; recouping inappropriate expenditures; adhering to state laws governing the transparency of local governments’ meetings; improving its budgeting process and preparing a repayment plan for its overdue debts; strengthening controls over procurement, accounting, and financial reporting functions; and maximizing available revenue sources.

Agency’s Proposed Corrective Action

Maywood provided an initial response to our audit report, in which it generally agreed with our recommendations. The city is in the process of preparing a detailed corrective action plan, which it will submit to us within 60 days.